17% of retirees to take the money and run

27 January 2015

Almost one in 10 pension savers plan to withdraw the entire value of their pension pot and put it into a cash savings account when they retire.

According to research by BlackRock, 17% of UK savers will withdraw all their pension and invest it elsewhere, with 9% investing it to generate an income while 8% will stash it in a cash savings account.

The prospect of so many people dumping their savings into cash accounts is a daunting one, given the low interest rates currently prevailing in the cash savings market.

This appears even more worrying when compared with figures suggesting 55 to 74-year-olds believe they will need an average annual income of £23,000 but believe they can get this from a pot of around £300,000 - when in fact they would need more than £440,000.

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Safety first

About a quarter will stay invested in their pension pots, make regular withdrawals and use some of it to buy an annuity. However, 28% are undecided about what action they will take.

BlackRock surveyed 2,000 individuals in the UK aged 25 to 74 years.

Yesterday, the Financial Conduct Authority wrote to the bosses of pension providers saying they must explain the risks of various retirement options to their customers before they decide what to do with their pension pots.

Alex Hoctor-Duncan, head of EMEA retail at BlackRock, says: 'Being over-reliant on cash for our savings is an issue, particularly as this research indicates that one in 12 baby boomers plan to withdraw all of their pension and put it into a cash savings account.

"The good thing about cash is that the number always looks stable in your account and you can access it when you want. However, inflation coupled with low interest rates, as savers have witnessed over the last five years, means the value of savings has in fact been eroded."

Because of inflation, £1,000 deposited five years ago now carries the spending power of only £853.

Mixed intentions

Tony Stenning, BlackRock's head of UK retail, adds: "The worry is whether they will gravitate towards the 'safety' of a cash savings account, as more than eight in 10 admit they don't know where to go to get the best income-generating investments and already two-thirds of their assets are held in cash."

3% of respondents say they will withdraw everything and use it to treat themselves. However, a similar survey by pension provider Nest found that more than double that - 7% - said they planned to fritter it all away.

But it is not clear from the research if intention is at all tied to pot size - for example those with smaller pots being more likely to spend the whole thing.

In separate research, the International Longevity Centre-UK found that 70% of respondents said they favoured using their pot to deliver a guaranteed income, especially one protected against inflation.

Find out everything you need to know about the new pension rules and how to plan ahead for the retirement you deserve with our new magazine, How to Retire in Style. The magazine is available to buy now from all leading newsagents, or can be ordered online at moneywise.co.uk/retire

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